Treasury Committee
Oral evidence: Economists: Budget 2026, HC 682
Tuesday 3 November 2026
Ordered by the House of Commons to be published on 3 November 2026.
Watch the meeting
Members present: Dame Meg Hillier (Chair); Chris Coghlan; Bobby Dean; John Glen; Andrew Lewin; Seema Malhotra; Ms Julie Minns; Catherine West.
Questions 170 - 229
Witnesses
I: Ruth Curtice, Chief Executive, Resolution Foundation; Helen Miller, Director, Institute for Fiscal Studies; Professor Tony Travers CBE, Interim Dean, LSE School of Public Policy; Sanjay Raja, UK Chief Economist, Deutsche Bank.
Witnesses: Ruth Curtice, Helen Miller, Professor Tony Travers and Sanjay Raja.
Q170 Chair: Welcome to the Treasury Select Committee on Tuesday 3 November 2026. Last week, the Chancellor of the Exchequer stood up in the House and delivered his Budget to the nation, and this is the beginning of the Treasury’s Committee’s examination of that Budget. I am very delighted to have in front of us a group of expert witnesses to help us divine what lies below the headlines that came out last week.
I am delighted to welcome Sanjay Raja, who is the UK chief economist at Deutsche Bank and an expert on devolution; Helen Miller, who needs no introduction as director of the Institute for Fiscal Studies, and who has been out on the airwaves already about this Budget—we may probe you on that, Ms Miller—Professor Tony Travers, who is of long standing at the London School of Economics and currently interim dean of the LSE School of Public Policy; and Ruth Curtice, the chief executive of the Resolution Foundation, also no stranger to this Committee.
I wanted to kick off with each of you in turn. Could you summarise, in your view, how much difference the measures announced last week by the Chancellor are likely to make to economic growth?
Sanjay Raja: I will start off by saying a few things on the Budget itself. It was as expected. I think we all expected this to be a pretty dull Budget, if I can use that phrase. We knew that the Chancellor had been talking up breathing space for households and businesses. From a financial market perspective, the bar was very low for this to be a big surprise.
The market was expecting three things. First was £15 billion of headroom. We can round up and say that the Chancellor met that goal. Second was £5 billion to £10 billion of extra borrowing per annum. That is roughly what we ended up getting. Thirdly, from a gilt remit perspective, which was the key focus for the market going into this Budget, it was very limited, so £10 billion-ish per annum in extra supply per year. There was the big surprise on that point. I am sure we will talk about that in a second.
In terms of the economic impacts of this Budget, the OBR said it itself. There is barely anything. Going through the 98 policy measures, we had quite a lot to dive into using our own multiplier, which is slightly different from what the Office for Budget Responsibility uses. Our own calculations tell a slightly different story, but the overarching story is pretty much zero. We have some growth in the current fiscal year, so about seven or eight basis points. It then moves into about zero basis points for the next three fiscal years. By the time we get to the back end of the forecast horizon, so the last two fiscal years, it starts to drag on GDP, which is very consistent with the sort of fiscal stance that most economists look at, which is the cyclically adjusted primary balance. That is what most economists will tend to see.
Q171 Chair: Can you describe what you mean by a cyclically adjusted primary balance?
Sanjay Raja: That is adjusting for the output gap, so the ebbs and flows of the economy based on the business cycle. That is part of that calculation, but it is also stripping out the interest payments. In some ways the cyclically adjusted primary balance tells you the true stance of the underlying fiscal policy stance going through over the next five years. It is a way to strip out the interest costs, which obviously have increased quite dramatically over the last five to 10 years, or at least over the last five years specifically.
Ultimately, it gives you a very genuine sense of where fiscal policy is moving from a growth perspective. That has been shrinking, so the direction of travel has been clear. Borrowing is on the way down, which is the good news from a market perspective. That also implies a little bit more of a tightening coming through the public finances. From a financial market perspective, that was received pretty well.
Helen Miller: Holding aside the big picture public finances stuff, just on that list of 98 measures, the short answer is that there is nothing there that is really going to move the dial on growth. The OBR said itself that it is not going to score anything. We should not get too hung up on just what the OBR is going to score. There could be lots of small measures that would be good to do where the Government believe they are going to be good for growth, where there is a good theoretical case for them. We should do them, even if the OBR does not think they are worth scoring for that bigger fiscal picture. We should not only care about things that are going to be scored.
Even looking past that threshold, I do not think that there is anything there that is really going to move the dial. The one bigger thing is around devolution, where you can make a story that that might help with growth. Maybe we will come back to that. We do not have enough details yet to say, “Yes, that is definitely going to be the thing that drives up growth”.
Q172 Chair: It is certainly true that the 10-year plan and the devolution approach are still to come, or “Rewiring the State”, I think it is called.
Professor Travers: I will leave my colleagues here to talk about the impact of the Budget on the economy in the short term. If I can look at the fiscal devolution proposals, they are the beginning of a long process that the Prime Minister has said he hopes will deliver higher levels of economic growth in all parts of the country. What we saw in the Budget was just the outside or the very beginnings of a process, which will be quite complex, to decentralise and devolve parts of the existing tax system to city regional and county regional mayoral strategic authorities. In the short term, whatever the impact is going to be in the longer term, it is not going to have much impact in the next year or two.
Ruth Curtice: As others have said, there is not much in this Budget that would move the medium-term growth rate. If there was a very straightforward measure that a Government could announce that did that, I think Governments would have done so already, to be fair.
Out of these forecasts, the one that is particularly catastrophic is the forecast for household living standards, with a tenth of the growth in the 2020s than we saw in the 2010s. Where this Budget disappoints particularly is in not facing up to the squeeze on households and not providing effective support as we enter a very difficult winter.
Q173 Chair: We will come to that. Helen Miller, the timings were interesting here. It was always a difficult thing. The OBR has its deadlines set by the Budget date, effectively. It put out its pre-measures forecast on 8 September and it was only a few days later that the ONS reported GDP growth of 0.7% in the three months to August. Do you think that those later figures give more room for optimism than the OBR forecast reflected?
Helen Miller: The short answer is no, not really. The uncertainty around the forecast is much more important. The OBR itself discusses that it thinks that, had it had that more recent data, it would not have made a big difference to its forecast. Maybe it makes a little bit of difference in-year. If we are thinking about the forecast over the next five years, it is what you expect to happen to growth that matters much more than what you think happened in this particular quarter. Most economists think that actually the economy has been more resilient this year than many people expected. Going into next year, as the effects of the war keep working through the economy, things will get worse.
There is always a huge amount of uncertainty around forecasts. There is also particular uncertainty at this moment around AI and, in particular, how we are seeing some data coming through on AI through investment, but that can have very different impacts on the labour market, for example, in coming years. The bigger and more important thing is around the uncertainty, rather than how you take account of any quarterly growth figures.
Chair: We are meeting today when the midterms are underway in the US, so there is another degree of uncertainty there.
Q174 Seema Malhotra: I was very interested particularly in the Resolution Foundation’s comments in relation to what could have been done more and what potential impact a closer relationship of the UK with the EU could have on growth. That seemed to be a missing piece of the puzzle. I was interested in whether you might talk a bit more about some of the commentary that you had around that.
Ruth Curtice: In the short term, we should be clear that the Government cannot mitigate all the effects of the war in Iran. The particular decline we see in household living standards in the short term is driven by those higher prices that come from higher energy prices. In terms of data we have had since the forecast, energy prices look to be closer to the more severe of the OBR forecasts already, rather than the central one. That is why we are particularly worried about households in the short term.
The Government cannot simply compensate everyone for that. The country is poorer as a result. What they make choices about is how to distribute those costs. Giving 80% of people £100 based on the value of their property in the early 90s was not a good way to support us through an extremely difficult winter.
As you say, on the medium-term growth rate, when we look at all the things that Government could do, the data around the impact of leaving the EU is that we are between 4% and 8% smaller as an economy than we would be without that. When we look particularly at the trade data, it is our goods trade that has really suffered since Brexit. We have become even more concentrated as a service economy. That is due to a decline in goods trade, rather than an acceleration of services trade. Particularly if the Government want to reindustrialise, in the sense of having more goods trade, the relationship with Europe will be very important.
Q175 Seema Malhotra: You are right to highlight that. Still almost 40% of our exports and about 50% of our imports are with the EU. Did you have any sense of, if there were to be closer ties with the EU, which is an important topic at the moment, where there might be a greater focus to support growth?
Ruth Curtice: It is about whether we could ease the trading relationship, and particularly the goods trading relationship. The approaches to the single market and to the customs union are the things that would shift the dial economically, in our view.
Q176 John Glen: Could I ask for balance on this subject? The EU is in a different place 10 years hence from the referendum and the costs of executing those closer relationships are not known. How do you weigh that uncertainty and the obvious uncertainties in the politics of Europe against that narrative around the positivity?
Ruth Curtice: It would depend on what deal was achieved with the EU. We have not looked at all possible deals and said that all possible deals are good deals. I doubt that they are. We have looked at what has happened to our trade in the 10 years since we left the EU.
Q177 John Glen: What about forward projections? It is always a retrospective view of what counterfactually could have happened against a dynamic that is very different in terms of trading relationships in the world economy now.
Ruth Curtice: We have not done forward projections at the Resolution Foundation of different relationships with the European Union. I think that others have.
Q178 Bobby Dean: Ms Curtice, I wanted to focus on living standards. You described them as catastrophic in your opening remarks. I have seen the figures that compare what the 2020s are going to look like against previous decades: 1.4% against the previously poor record of 14%. How much could the Government have done about that in this Budget?
Ruth Curtice: The big choice that this Government face in 2027, having not faced it at this Budget, is the choice between household incomes and departmental spending. The total consequences of tax and benefits have been very significant in the 2020s. When we look across these big picture decades, both the 2010s and the 2020s have disappointing economic growth per person, and that drives the disappointment relative to previous decades. In the 2010s, overall taxes and benefits added to household incomes, whereas in the 2020s they have been a drag on household incomes.
That money has been spent on higher departmental spending overall. There is not a big difference in the borrowing levels between the end of the previous decade and what we expect by the end of the 2020s. This is a story of higher spending for less household income.
Perhaps the 1% extra that has gone on the NHS might be something that voters are happy with. The reason it feels so tough is that over 2.5 percentage points of GDP of that has gone on higher debt interest spending. That higher debt interest has meant we are much poorer as a country. The choice that the Government face is the extent to which public services or households absorb that cost. The reason we have seen these grim living standards forecasts through the 2020s is that they have chosen to ask households to bear almost all of that burden.
Q179 Bobby Dean: To push you on that, are you suggesting that they should have redressed that balance differently, so more pressure on public spending and more support for households instead, either through reforms, tax cuts or increased benefits?
Ruth Curtice: They could have done two things. First, when you have very tough average living standards, you need to think really carefully about how you are distributing those living standards and the money that you are spending. The cost of living support may be relatively small, but it is important that we scrutinise it in terms of what it tells us about how effectively the Government are making those choices.
Secondly, as we approach a spending review in 2027—and it looks like being an extremely difficult trade-off between incomes and departmental spending—one key choice next year, whether things get a little bit better or a little bit worse in the face of all that uncertainty, is where the Government’s priority lies between incomes and public services.
Q180 Bobby Dean: Ms Miller, we have spoken about energy costs driving a lot of the problems. There is a narrative out there that, maybe if the war in Iran eases, a lot of these problems go away. What kind of difference could an improvement in the global energy crisis make to people’s income standards?
Helen Miller: On energy prices, there are two different issues. One is that we got unlucky. There is a war out there in the world, which we have not started, that drives up gas prices, and that is directly affecting our electricity prices. That is bad for us because we all need electricity. It is unfortunate timing, because we are at a point where we are trying to transition away from gas, but we are still weaning ourselves off it. We have got to this point. We have a plan to get off it. We are not there yet and therefore we are being hit by the full force of these prices. The sooner those prices came down, the better we would all be. That would help relieve living standards pressures. Living standards, basically, are how much income you have divided by the prices you have to pay. If those prices came down, that would be better.
The other thing about energy prices is that, even before this, we had internationally very high electricity prices. In part, that is a policy choice to take the subsidies that have been used to fund renewables generation and pop them on to the unit price of electricity. We think that that is not the best place for them and you should park them somewhere else. That is really about how you move money around. You cannot make them disappear. Somebody has to pay them. It is just that, by putting them on marginal prices, we are disincentivising electricity more than we think you should, given everything else going on.
There is that background picture about electricity prices, and the Government could do something else. One of them would be genuinely win-win with lower prices. One of them would be good in some ways, but you would still have to find somebody else to pay the cost.
Q181 Bobby Dean: I guess what I am trying to drive at is how big a part energy prices are in this really stark figure of only looking at a 1.4% increase in disposable income over the course of this decade. If the war in Iran was to ease and the energy price situation was to improve in the near term, would that make a dramatic difference to that figure, or do the Government have a lot more work to do elsewhere in order to drive that up?
Helen Miller: The short answer is that they have a lot more work to do elsewhere. I do not have the exact number in front of me about how much difference it would make, but the OBR has some scenarios about how much it matters. It matters. From the March forecast to the October forecast, living standards have been revised down and that really is the effect of this higher inflation.
It is worth saying too that even the central forecast assumes that inflation peaks at the end of next year and then comes down again. Even the central forecast assumes that this war comes to some kind of cease and that inflation pressure backs off. It is worth remembering that things could get worse as well as better, sadly.
Even without that, there is an underlying low productivity problem going on here. To pick up some of the previous conversations, the Government have a couple of different challenges. One is, in the short run, to decide which types of people to support and how. For a given size of the economic pie, you have to work out which people to give it to and how to do it between direct incomes, tax cuts or public services. That is a really tough trade-off.
What is going to make us all better off is not just accepting the size of the pie. It is doing all the things across lots of policy areas, which could be about energy prices, competition, education or tax policy reform. If you doggedly did the hard yards across lots of areas, that could tilt up the growth rate. Quite frankly, it is probably too late for this decade. It is too late to really bend it up too much through that underlying productivity. Certainly going into the next decade, that is the thing that would really make the next decade better than this decade.
Q182 Bobby Dean: Mr Raja, I am wondering about the scarring effect this kind of decade could have on people. Are you anticipating or already seeing any long-run effect on consumption or saving habits because of people being under pressure for such a long time?
Sanjay Raja: There will absolutely be some scarring effect. I have one point if I may come back to the question that you asked previously in terms of what the energy forecast ultimately means for the public finances. If we do a very simple decomposition of the pre-measures forecast, you can make a rough guesstimate that that cost on borrowing amounts to £8 billion to £10 billion, give or take. That is the cost of higher inflation. A one percentage point increase in RPI across the forecast horizon adds about £10 billion to borrowing. We all know that, but of course the real disposable income squeeze, as Helen mentioned rightly, comes predominantly because of the energy shock.
The one odd thing about this forecast, and I think Ruth mentioned it at the start, was that we have two very different conditioning assumption windows, which makes the forecast a bit odd compared to what we have seen in the past. You have one forecast—the economy forecast—that was closed, I believe, on 19 August, when the conditioning assumption window ended. Then you have the fiscal forecast, which has five working days to mid-September. That is when the conditioning assumption window for the fiscal forecast closed.
There are some merits to having a little bit of clarity on the economic forecast 10 weeks in advance of the Budget, but ultimately the OBR has got something wrong, and it comes back to an earlier conversation about the growth numbers. It has underestimated GDP to some extent. Clearly Q3 GDP will be a lot stronger than what the OBR is expecting. On the real income squeeze, inflation next year will probably be something like 50 to 60 basis points higher than what the OBR expects next year. It has an £1,875 price cap for Q1. Our forecasts are roughly around £2,150 and rising in Q2.
Of course, we will not have a lot of clarity on what happens in the second quarter of next year in terms of the Ofgem price cap, but for the coming quarter, so the winter months of January to March, where we know energy consumption is pretty high, we are expecting something like £300 to £400 on an annualised basis higher than what the OBR expected.
There will be some scarring effect on inflation. The peak in CPI for us is closer to 4.25% as opposed to 3.75%. There will be a little bit more of a real disposable income squeeze in the first quarter of next year. Ultimately, that compounds over the cost of living shock that we have had for a good while.
Chair: There will be less money to spend.
Q183 Bobby Dean: On the final point about the scarring effect, do you think that this could have a long tail in terms of consumer spending and saving habits?
Sanjay Raja: A medium-term effect is where we would probably put this at. In three or four years, yes, we will have some scarring effects. If you look at the OBR forecast in terms of household savings, that goes from an adjusted 5.25% or 5.5% all the way down to about zero. There will be some effect on savings rates and how households smooth over their consumption patterns. This will be interesting to see.
The OBR is slightly more on the pessimistic side about what happens to real disposable incomes. We saw this in 2022, where it forecasted a bigger squeeze. We did not see that because energy prices fell back quite quickly. Wage growth was a little higher than people expected and than the forecasters expected, including us. Ultimately, that cushioned a little bit of that squeeze in real disposable incomes. I think that we can expect something similar over the coming years.
Q184 Seema Malhotra: I want to ask about productivity. There has been an increasing debate about productivity and the extent to which the UK still has a productivity problem compared to other countries. The Treasury reports annualised productivity growth of 1.3% over the past two years, compared with less than half that between 2015 and 2024. Do you think that this gives us an insight into the prospects for sustained productivity growth in the UK? What is your assessment of what has driven the change in the last couple of years? Do you think that some of the measures that we have seen from the former Chancellor that increased public investment have had an impact on that as well?
Helen Miller: Some of the important context here is that the ONS made a pretty big revision to the way it measures people’s hours worked. As a result of that, we now think productivity per hour worked is much higher over the 2010s than we previously thought. You mentioned the international comparison. It still means that productivity was lower post-financial crisis than pre-financial crisis, and that is bad news for us all, but we are less of an international outlier. Now we do not look quite as unusual as we did look. That, in some sense, helps explain why we could not find some of the answers as to why we looked so unusual, because they are in the data.
Importantly, however, that was all about hours worked. What has not changed is the amount of income being produced and the number of workers. On that broader measure of productivity of output per worker, which is what conditions these forecasts and drives the aggregate, that has not really changed.
On your other question about what has changed in the short run, my view—and others might differ—is that there are good reasons to think that public investment could help drive up productivity. The devil is always in the detail. It depends not just how much you invest, but what you actually invest it in. I would expect it to take some time for that to feed through into the economy to give better infrastructure or more capital that allows people to be more productive. I would be surprised if that is a big driver of the in-year improvements, but it might have an effect overall.
The bigger point is the one that I mentioned earlier and that the OBR puts a lot of emphasis on. It is the uncertainty, actually. It is really hard to know how productivity is going to develop. That is always true, but AI is making the uncertainty even bigger than usual. In our annual Green Budget, so our look ahead at the Budget, we model two broad-brush scenarios: that AI might just boost investment and give us a demand pick-up in the short run, but not lead to higher, sustained productivity growth; or that it might increase productivity, so make us more productive, and increase growth. In the short run, those will look quite similar, but in the long run they could look quite different. For me, the uncertainty about productivity is as important as any particular point estimate.
Sanjay Raja: I will make a few additional points. To underscore Helen’s point, which is why productivity is so important to the public finances, on our calculations a 0.1 percentage point increase in productivity reduces borrowing by about £7 billion to £8 billion by the end of the forecast horizon. Small changes can have huge impacts, as Helen mentioned.
I am a little more optimistic on the productivity story. Helen mentioned that there is £100 billion of capex that has been pushed through by this Government, or the previous Government and the previous Chancellor. There is more capital deepening. That is having some impact. We will not feel the full effect for years to come, but are we seeing it in the data from a capital perspective? I think so.
Even beyond that, from the private sector perspective, our conversations with UK plc have been very much clear that, since we have had the tax changes, wage growth has increased. We have seen reduced immigration as well. It has forced businesses to make some of the investment decisions that they have put off for more than a decade, so digitalisation and automation. Before even talking about artificial intelligence, we are starting to see some of those effects pan out in the data.
You can look at the GDP data this year. We have grown by about 2% with about 40,000 fewer employees, according to HMRC payroll data. That tells you that there is a positive spin on the productivity story. Professional services are seeing output increase by about 4%, hospitality 3% and retail 2.5% in terms of output per worker. You are seeing a little bit of that coming through in terms of this productivity revival.
Q185 Seema Malhotra: I am interested in your view. The former Chancellor made a comment recently that she thought the productivity puzzle had been revised away and that, in the last two years, productivity has rebounded to the pre-financial crisis levels. I am not sure, from what you said, that we have rebounded to the pre-financial crisis levels. I was interested in your view on that and whether there was anything more that you felt was missing from this Budget that could have made a difference to support lasting productivity growth.
Sanjay Raja: To Helen’s point, output per worker has improved because of the various calculations that the ONS has made on the denominator side. The numerator side, so the GDP data, has not changed. It is just the number of workers that we assumed has changed. To Helen’s point, output per hour has not changed much, and that, ultimately, is the biggest ingredient towards productivity and the public finances. On that metric, we still are a little bit of an outlier relative to the G7.
In terms of what this Budget has done to improve productivity, the only things I would say that could have amplified some of the effects are the financial transactions that were announced. We had an increase in the off-balance sheet expansion via PuFins—the public financial institutions. There is less clarity on what this money will be spent on; hopefully we will have a little more clarity. That perhaps screams to some of the discontent or discomfort that the market has with these public financial transactions.
Nevertheless, if there is one thing that we point to in terms of what is going to lift productivity, it is not the policy measures. I think we all said that that is not going to move the dial. Could the financial transactions that are being pushed through, so the £15 billion or £10 billion that has been allocated in this Budget, help medium-term supply-side growth? Yes, but the proof will be in the pudding in terms of what those projects are. We do not have a lot of sight and clarity as to what that looks like at this point.
Helen Miller: On the productivity puzzle, there are two aspects to it worth distinguishing. One was, post-financial crisis, why we looked so different from other countries. The answer is that we do not look so different once you correct the data. We still look a little different, but not as different as we thought we looked.
The other is why it is that, post-financial crisis, the growth rate came down. It is not so much a puzzle. People have reasons why they think that that is happening, but that is still something that happened. If we think about post-crisis, the point was not that we just had a good year. It is that, year after year, we had this strong growth, and it really compounds over time. We have not got back to that. We have not got back to, year after year, having strong productivity growth that really moves the dial. To the question earlier about why living standards have been different, those previous decades look better not because they had the odd good year but because they had lots of good years.
On the policy, there was no one thing the Government could do to make it okay. What we are not seeing yet from this or the previous Government is enough of a focus on, whatever area you are touching, doing more to make it more pro-growth. Tax reform would be an obvious one. There was a ton of tinkering with the tax system. Maybe we will come back to that. I could not see any grand plan for a tax reform or anything that was going to say, “I am at least chipping away on a problem towards a better end state”. It felt very scattergun. If, in every area, there was more of an approach of, “We are going to move towards a better system”, when you add that all up, you would start driving up growth.
Q186 Andrew Lewin: Good morning. One of our pre-Budget traditions has become speculation about how much headroom may have fallen or increased based on one year to the next. Helen, I will start with you. To confirm, we had £23 billion last year. It is now £15 billion after the Budget. Does that mean it was an £8 billion fall, or did it fall further and the Chancellor built it up? I am also particularly interested in how much we can attribute that fall in headroom specifically to the war in Iran.
Helen Miller: The pre-measures forecast, which is before any policy happens, had headroom falling by more. In the year in which the fiscal rules bind, the Government have topped it up a little and made it slightly higher. It is worth saying always in these headroom conversations that we are talking about the difference in two very big numbers. In that context, a number that is £2 billion up or down is really the same number. We should not get excited about it being £13 billion, £15 billion or £12 billion. They are all the same number in this context.
The down revision happened and the Government have done a little bit in that year. They are basically borrowing more in the short run and having a net takeaway in the medium run. It crosses over and in that year it is putting the headroom up a little bit.
On what is happening, there are various moving parts. The other bits wash out and therefore the takeaway is that it is higher gilt yields. Higher government interest costs push up borrowing and that is the mechanical difference. In the background, the public finances are a nominal beast, by which I mean that, when you get higher inflation, you also get higher tax receipts and higher benefit spending. Those things are happening as well in the background of the OBR forecast. There are also a bunch of other changes that my colleagues described, deep in the bowels of the forecast, to do with things such as changes in depreciation numbers. All of those basically offset each other, so you are left with this effect of government gilt yields pushing up borrowing and pulling down headroom.
Q187 Andrew Lewin: On the gilt yields, would you agree or disagree that the war in Iran has probably been the single biggest factor that has driven that movement between the two forecasts?
Helen Miller: Yes, it is the single biggest thing. Importantly, it is not a UK-only story. For a few years, we have got used to this idea that the UK was an outlier in the gilt market and we had pressure on us. If you look across lots of countries now, if anything our gap is narrowing a little bit. It is what is happening. It is the Iran war pushing up inflation expectations, pushing up central bank interest rates and putting pressure on gilt yields. There are other things happening, such as the fact that many Governments are selling a lot of bonds and that is putting pressure on the market. AI companies are now competing in the bond market. It is not the only factor, but the single biggest change in the forecast between October and March is that war in the middle east.
Q188 Bobby Dean: I appreciate that the difference in the numbers is not that big when you are looking at what you are plussing and minusing, but we saw how big a difference the headroom can make in terms of tax speculation. Earlier in the Parliament, we had very low levels of headroom—£10 billion—and that was seen as problematic because, as soon as there were shifting global events, it started to lead to tax speculation. We had that headroom built up to a higher level under the previous Chancellor, but it has gone back down again. Is there a concern that, the next time there is a global event, we are going to go straight back to that position of tax speculation that creates uncertainty in the economy and causes other problems?
Helen Miller: The short answer is yes, absolutely. It is worth reminding people that even the £24 billion that Rachel Reeves built up was small historically. Back in the 2010s, a buffer of something more like £50 billion would have been the norm. Even £24 billion we were saying is small, and obviously £15 billion is even smaller.
It is not just the problem that big shocks could come along. We calculated that, if you look at all the forecasts since the OBR was set up in 2010, between fiscal forecasts, so the Budget to the spring forecast, we think that, in 25% of cases, an ordinary run-of-the-mill forecast change because there is uncertainty would be enough to mean that, by March, the Government could be blown off course. Their headroom could disappear, not because some new big shock comes along, but just because forecasts are uncertain. Of course, if a big shock comes along, you are in even bigger trouble and your headroom has been eroded.
I agree with the point you are making. Even if those shocks do not come along, the fact that they could come along and people know that, if they came along, the Chancellor would have to change tax policy quite quickly, alone is enough to get that speculation going. It also matters that we are in a situation where the Government have set up the spending review for next year to look very difficult. In that context, people will be questioning whether the Government want to deliver that and whether they will come back with more tax rises or more borrowing. That will add to this sense where people know there is a big fiscal event coming. Whenever you have a big fiscal event coming, for whatever reason, people speculate about what is going to be in it.
Q189 Bobby Dean: On that, the last spending review was a standalone event outside of fiscal measures being implemented. Do you think that that seems plausible for next year, given all the work they have to do on potentially departmental spending and on defence? If July 2027 comes through and the fuel duty rise kicks in with a 14% rise, which they may or may not want to do, it seems like a lot of work to do in a spending review without fiscal measures.
Helen Miller: Under the framework that Rachel Reeves set up, which had a lot to say for it, the fiscal rules become based on three years. You have a spending review, which means that the spending review covers the year of the fiscal rules. That makes fiscal discipline easier to maintain. That is a good idea. The Budget would have been the last moment to set the overall envelopes and the spending review would have been next summer. That would have made a lot of sense.
The Government could still do that. There is nothing to stop them. We do not know yet when they want to do the spending review, but they could still have it next summer. The issue is whether they want to take the current spending plans to a spending review—if they do, great. On the timing point, I do not think there is any reason why you could not get yourself ready. Of course, more time is always nice, but there is no reason why you could not do it by next summer.
If they want to kick it back and do it next to a Budget, that is going to be a whopper of a fiscal event, because you are going to have a very big Budget. Presumably there will be a 10-year plan that also has policy measures. There will be other measures coming in. If they are doing it because they want to raise more money or cut other spending, that will make it a very big event indeed. Again, to your earlier point about speculation, the bigger the fiscal event is, the more people will be trying to guess what the Government are doing. They are going to try to guess how they should change their behaviour in advance.
Q190 John Glen: Could I ask about the devolution agenda, which is a significant part of the new Prime Minister’s approach? What analysis has been done of how that will affect the public finances? You reasonably say that we have only just started looking at it. Presumably that unleashes quite a lot of uncertainty, which must be quite difficult to measure and account for in our public finances.
Helen Miller: There are lots of moving parts here and we do not yet have all the details about exactly how this revenue assignment is going to work. We know that mayors will lose their grants, or part of their grants, they will get a share of income tax revenue in place of that, and there will be some mechanisms as to how that evolves over time.
In terms of the bigger picture of how it affects growth, the answer is that we do not know. I could tell you stories in which I think it would be good for growth. I can tell you stories in which it will not be good for growth. The devil will be in the detail. We will have to wait and see. That will affect the public finances.
On the more mechanical angle of it, we expect that, in the next spending review, the Government will decide the initial allocations to mayoral authorities. That will affect the spending review. You have to decide how much to spend at a local level versus a central level and how to do the mechanisms for that.
At the moment, if you just take what the Government have done as the first step, in fiscal terms it is relatively small. I do not think that it is going to be the thing that throws the spending review completely off course. It will be its longer-term impacts. If it is the foothills of something much bigger, a bigger devolution package with something like a Barnett formula for England could be much bigger. What we know about now is relatively self-contained, but it will matter. It will matter in part depending on exactly how they choose to implement it.
Q191 John Glen: I think that my colleagues have more to ask on that later on. On this headroom figure, you rightly asserted that the relative historical is £23 billion or £24 billion and now we are at £15 billion. The Government would reasonably say that it shrunk lower in the last year of the last Conservative Government. As I understand it, that puts us in quite a precarious position. Not much needs to change if we look at it overall. Is there not a significant risk that, unless that headroom is recovered to a higher level, to more like the previous Chancellor had it at, the speculations over how it is going to be filled will naturally be part of the discourse, because you guys will point to it as happening? What do you think about the security of the £15 billion as a mode of operating?
Helen Miller: It is worth remembering why we have headroom. The Chancellor has a fiscal rule that says they want to get to the current Budget balance by 2029-30, but, because the forecasts are so uncertain, it makes sense to target a surplus, so you can be more sure that you are actually going to get to the zero that you want. In that context, without forecasting uncertainty, it is reasonable for a Government to say, “A shock came along and the forecast changed. Rather than do a big change in tax measures now, I am going to use that headroom”.
To your point, it is not costless to do that, because the cost of it is that it adds the risk that something else will come, so another run-of-the-mill forecast will come, the war will get worse or something else will crop up, and you will have to make a change. It is reasonable, but definitely not costless.
Another problem that history advises caution on is that, in principle, you could expect Chancellors to allow this buffer to naturally rise and fall with run-of-the-mill forecast changes. We have seen over time that, when the headroom rises, it is spent down and, when it falls, it is allowed to fall. There is that asymmetry: you do not allow it to naturally rise in the good times—you spend it—and then you allow it to fall in the bad times. That asymmetry builds in this ratchet effect in borrowing. You might want to rebuild it as you go forward, but also, if in future the forecast improves a little bit, let us not get carried away and think that now we can spend that money. We should be thinking of it as a symmetric buffer.
Ruth Curtice: These comparisons between headroom levels are not that helpful, because these are rules that Chancellors define for themselves. We are comparing headroom to their own targets, which have changed a lot through time. The important thing about this Budget is not so much what has happened to headroom as that, on average, it has added £10 billion or so to borrowing. That is, big picture, what matters.
Instead, you can look at how the current Budget three years out compares to what current Budgets tend to be. At £15 billion current Budget surplus, which is the number we are all talking about, in three years’ time, if typical variation to the real world happens, it will end up being a £26 billion deficit in reality. Most of that is the things Helen talked about, about Chancellors tending to add more than they take away.
Q192 John Glen: We now need to move to spending pressures. There is a lot in there and we talked about the uncertainty around the spending review. This core issue that a lot of people are preoccupied with is when we are going to get to 3% of GDP on defence. If that commitment is made to 3% of GDP by 2030, can you indicate what that would mean for other departmental spending? This is the core choice that has been framed.
Helen Miller: All we know so far is that we do not yet know how the Government want to allocate the assumed total amount of spending across the rest of the Parliament. Therefore, as we have done lots of, you can do different scenarios that say, “If this, this and this, then that”. Ultimately, it is a choice.
If you take the current spending envelopes, because of the high inflation we talked about, they are already less valuable than they were back in March. We think that just that higher inflation has wiped something like £8 billion off of—
Q193 John Glen: That means real-terms cuts and other—
Helen Miller: Yes, exactly. In the same way that, for households, when you have to spend more on your shopping, you have less money, that is true of the Government too. There is plenty of uncertainty there, because what matters is the inflation that is relevant for the Government. We do not yet know what inflation is going to be in the next three or four years for the Government, so that number could be quite different, but, for a sense of scale, you have lopped off £8 billion, effectively.
It is also the case that the growth in Departments is slowing in the plans over time. Again, there is nothing wrong with that inherently. There is no reason why the state has to grow every year, but it is slowing relative to prices and it is falling relative to the size of the economy, so the state is being trimmed back.
If you want to increase health and welfare spending, accommodate those inflation pressures and not make real-terms cuts, we think you have something like a £28 billion gap. That is not saying that you have to raise it at all. There is a spectrum where you can either try to raise something in the order of £30 billion to plug all those gaps, which basically means you have health spending grow at 2.7%, which is what it got under the previous spending review, defence moving to 3% and everything else held flat in real terms, or not do any of that and impose those cuts, or have something in the middle. You could hold back the NHS. The NHS is huge here, so what you do to the NHS has a big effect. If you are willing to hold the NHS at a relatively low level, that would free up more resource elsewhere. There are endless sets of choices here.
Q194 John Glen: On that, because the NHS is so significant, I see assessment of the value of AI to the economy at 0.2%. Does that have any impact on the NHS that would justify that and avoid that being a politically impossible scenario to move forward with?
Helen Miller: There are a few context things here. One is that we have an ageing population that is demanding more and more expensive health and social care, so the demand on the NHS is not constant.
Q195 John Glen: Can you deliver it relatively cheaper?
Helen Miller: I think so, but the assumptions underlying this spending review already have some really punchy productivity assumptions embedded in them. Everything I have just said to you assumes that they can actually deliver this historically very fast productivity growth—if they can, great. I would be very impressed if they can go even faster than that, because it is so historically impressive.
Professor Travers: In the context of the excellent figures produced by the Resolution Foundation and the IFS, if you look at the analyses going forward of the protected parts of public spending, so the NHS, the benefits system and defence, and the impact that that has towards the end of the decade on unprotected services, the whole of the sub-national government, so MSAs—mayoral strategic authorities—and local government, lies in that unprotected part. The whole of this new sector that is going to help drive growth starts life in an unprotected sector of public spending.
Q196 John Glen: There is an assumption around a 2.5% to 3% reduction in real terms.
Professor Travers: Those are the kinds of figures that both organisations have been showing, looking ahead at the unprotected group of services, which includes these devolved institutions.
Ruth Curtice: On spending overall, we need to add a couple of caveats. One is that there was a big boost to spending at the start of this Parliament. It is still the case that, when you look across this Parliament as a whole, that day-to-day spending per person is growing at about 1.7% real on average, with quite an extreme profile, which is why Helen is right to be sceptical about those later years. It is important to look at that picture as a whole. We also had a slightly smaller population in this forecast than in previous ones and that mitigates small amounts of the inflationary pressure.
We also saw, again, this pattern of day-to-day spending being topped up in the near term and then these very optimistic projections for the longer run. Day-to-day spending was increased by £9 billion across the current years of the spending review where those totals are meant to be fixed, albeit there was not a big change when you look at day-to-day and capital together. Departments have been somewhat compensated for the inflationary pressures with new announcements when it comes to day-to-day spending.
Q197 John Glen: It still leaves your figures showing household disposable income down 0.8% in this year.
Ruth Curtice: Yes, absolutely.
Q198 Bobby Dean: Professor Travers, you spoke about protected and unprotected Departments there. I wanted to see whether you can give us clarity on whether that also applies to the capital spending. There has been this commitment to reallocate capital spending to defence. I am wondering whether that will come from, say, the NHS new hospitals programme or whether that is going to be excluded from that capital reallocation, if you are aware of that.
Professor Travers: My colleagues will correct me if I get this wrong, because they are their figures. I think these cuts are generally about resources and departmental expenditure levels, so it is day-to-day spending mostly. Capital spending is different. Looking ahead, there have been some cuts to capital spending already, particularly for the roads programme, for example.
Looking ahead, sub-national government, as I now call it, involving these MSAs and local government, probably faces a future in terms of revenue spending that is slightly more constrained than capital spending. Indeed, parts of the devolution proposals allow for slightly increased capital expenditure by mayoral strategic authorities. Overall, the picture on capital expenditure is not that much more rosy than on revenue.
Q199 Bobby Dean: On that specific point, I do not know whether any other panellists can come in on whether they think there is going to be a freeze on capital spending for the NHS in this defence reallocation. Does anybody know the answer to that?
Helen Miller: We do not know the answer yet, in the sense that we do not have the spending review and the Government can choose. Importantly, a lot will depend on how they get to the 3% on defence. So far, the moves on defence have been quite capital-intense. If you really thought the Government wanted to stick to their current plans—let us take them at their word and assume that they do—they have to choose, with defence at 3%, how much comes through current and capital. That choice, therefore, depends on what else you are trying to squeeze.
Let us say you did a big chunk through the capital budget. Again, within the overall envelope, it has to come from somewhere. We do not know whether it would come from hospitals, net zero or somewhere else. We saw the Government move a little bit from some of the environmental stuff into defence. It comes to this choice. If you move it from somewhere, you have to pick what else is not going to happen instead.
Ruth Curtice: Non-defence capital spending is set to be lower by the end than in 2023-24, despite those increases that were talked about.
Q200 Chris Coghlan: The Government have launched a consultation on wholesale contracts for difference. How far do you think this could reduce electricity prices?
Sanjay Raja: It is a good start. On our house calculations, we have CfDs subtracting from electricity prices by about 1.5% to 2.5% next year and potentially a half percentage point in 2028, so it makes a difference. In the round, some of the energy policies that we have seen—big picture in terms of the cost control framework—are things that could have a much more material impact, as I think Helen mentioned at the start, in terms of how we think about energy costs going forward.
From a CfD perspective, it is a step in the right direction. We are seeing a delinking of electricity and gas prices already. Rewind three or four years, if you looked at just gas prices, you could pretty much guess where the Ofgem price cap was going to be for both electricity and gas prices. Now wholesale gas prices set the electricity price 60% of the time, as opposed to about 90% of the time three or four years ago. It has had a big impact. It has made a difference. Hopefully that that will continue over time.
Helen Miller: This is a particularly complicated area, and it is perhaps worth untangling what is happening.
Chris Coghlan: I listened to your excellent podcast on that the other day.
Helen Miller: Good. Thank you very much. We have been deep in the weeds on this and it is worth understanding what is happening. There are a bunch of renewable generators that are on old-style contracts, so are not on CfDs. When the gas price is high, they make high profits. Importantly, there is already a windfall tax in place that captures a lot of those profits. That is important background. At the moment, the Government could use that windfall tax to pay for the levies and bring down the electricity price, and are choosing not to, basically, or kind of are, but not directly.
If you go for these new contracts for difference, you are going to take those generators and try to get them on to a contract that says, “We are going to set you a price”. Therefore, when the gas price is high, the Government will automatically take that money and use it to reduce other levies on electricity prices. We are not protecting the gas price. The gas price will still set marginal prices. It just puts in place this automatic mechanism by which the money is taken and used to remove levies. Importantly, you will be having that instead of the windfall tax revenue you are getting.
Going back to my point earlier, we have these big levies that are used to subsidise renewables. Someone has to pay. At the moment, they are being paid for on the electricity price. This is a model that says, “Instead, we will take some of the profits and pay for them”, but you are not making them disappear. You are just moving who is paying for them. That is really important, because what would be really good is the underlying driving down the actual price. It is good to move them around.
What is going to really matter is the price that is set when we auction these things. On the one hand, if we get a really good price, it could be good for consumers, but we will be also giving firms some insurance. Let us imagine that we set a price on these auctions for these contracts and in future years the gas price really falls. We consumers will be paying to top up the profits of energy companies. It is not a one-way bet here. It could be good; it could be bad. The quality of those auctions and the price that is set will determine how good a deal it is for consumers.
Q201 Chris Coghlan: Fundamentally, the gas market is going to set the marginal price of electricity for a significant period because there is not enough ramp-up in renewable energy, and renewable energy cannot balance the market.
Helen Miller: Yes, until we have more renewables on the grid, not just more windmills built but an ability to take power when it is windy in Scotland and get it to other parts of the country. Until the grid upgrades happen—and that takes billions of pounds to get it happening—and we can get the renewable power moving around and consumers charging their cars at the times when it is windy, gas is going to set, I think correctly, the marginal price.
Chair: Does anybody have any comments about GB Grid and what impact that will have on upgrading the grid? I think it has 10 or 11 projects planned. No, okay.
Q202 Chris Coghlan: The Government announced £5 billion in the public financial institutions for dual-use military technology. How optimistic are you about the impact of this on growth and productivity?
Helen Miller: I do not have a view on exactly how much it is going to increase growth. There are a few things worth saying. There is a path through which it could increase growth. It is also a path that actually is not about growth at all. It is more about industrial policy and capacity. It is about us wanting to have the capacity to have companies in this country that can produce armaments in case we need them. That could be a really valuable social thing to be doing.
The question to ask is, if that is not already happening, why the Government making it happen is going to be good for growth. It might be, if you think you can crowd in new technology, but it could be worse for growth than if you had put that money into infrastructure instead. Again, we do not know, honestly.
When investment is through PuFins, we are not getting munitions directly that we can go use in a war. We are getting capacity. If you want tanks, drones or whatever it is you need in modern warfare, you still have to find the cash from a government budget to actually buy that stuff. I tend to prefer to think of those public financial investments as more about an industrial strategy and capacity, or about whether you can unlock private investment or solve a market failure, as opposed to either the pure defence, “Let’s get some munitions” or a pure growth policy.
Sanjay Raja: I will add two things very quickly. One is that it is less clear how these PuFins spending will ultimately score against the NATO targets. For the reasons Helen mentioned, that is going to be a question mark. Does that add towards the 3% or 3.5% target in 10 years’ time? It is a question that we are not quite sure about, depending on the accounting exercise that goes on behind the scenes.
The other thing to say also on the spending is that it can drive investment if it helps build industry, so small and medium-sized enterprises as opposed to going into the larger enterprises. This is perhaps a focus for the Government. I am not a defence expert by any stretch of the imagination but this is where you could start to see some gains by building out of industry. As Helen mentioned, it is the industrial strategy that matters ultimately.
Q203 Andrew Lewin: Staying on the theme of energy, I am interested in the OBR forecast on tax receipts from oil and gas falling quite markedly over the period of a number of years. The panel will be aware of the political debate about Rosebank. I wanted to check my understanding and get your view on this. It looks to me as though Rosebank has been included. There are assumptions on what tax revenues would come forward if Rosebank was approved. When you break it down, at most Rosebank itself would generate in the low hundreds of millions of tax revenue. Sanjay, is that right? Is that your understanding?
Sanjay Raja: Yes, and those are the figures that I think the OBR has presented. We do not have a specific view as to how much tax revenue that will raise ultimately, so we take the OBR’s guidance on that.
Q204 Ms Minns: Returning briefly to some of your opening remarks and in particular your remarks on growth, in our pre-Budget sessions, we heard evidence that the Government really need to pick some winners here when it comes to internationally competitive clusters. Do you think the Government’s plan is sufficiently robust and focused in that regard at the moment?
Professor Travers: This is probably one more for my colleagues. In terms of the devolution agenda, it is clear that the Government are beginning to formulate policy for using funds from different funding streams in order to invest in major projects across the country. They are creating what they call a good growth fund, which is to bring together money that comes from the British Business Bank and other funding in an attempt to target investments that will produce long-term industrial capacity. That is as much as we know so far. Beyond that—my colleagues will correct me if I have got this wrong—the Government’s proposals for investment in order to deliver growth by sector are still relatively unformed, but that would be my understanding.
Q205 Ms Minns: What does this mean for devolution? If the Government's ambition is growth in every postcode and we are hearing evidence to say that they really need to prioritise clusters in order to get growth going, where does that leave the devolution agenda?
Professor Travers: There is undoubtedly a potential contradiction. If you look at the way in which devolution has worked thus far, it has been heavily focused on cities, so mayoral strategic authorities. All the biggest ones thus far are cities, or overwhelmingly so. They tend to have a logic of agglomeration, concentrating economic activity in central areas of cities and at airports, and trying to spread the growth from those city centres.
Many of the new or soon-to-be-created mayoral strategic or foundation authorities are very different from that. They do not have a big city in the middle of them. They have perhaps one larger town or medium-sized city and they are predominantly rural. To what extent the model, as it has evolved so far, particularly under the advice of people like Lord Jim O’Neill, works in more rural or less urban MSAs, again, is work in progress. We do not know.
Ruth Curtice: It does come back a bit to what you are trying to achieve with devolution. When we look at growth in the UK, it is the case that a lack of cities to rival London and grow a bit bigger compared to London has held back the UK compared to other countries. That is an agenda that fits with having big devolution to some of those larger second cities.
It is different, as Professor Travers says, from what you might achieve by having mayoral authorities with more authority across the country.
Q206 Seema Malhotra: I wanted to ask about what you would hope to see in the “Rewiring the State” delivery plan. This is an important step in answering some of the questions that there will be about how devolution is set to work and deliver on the Government’s intended outcome of seeing more growth and it being more equal across the country. I would be interested in your view on that first, Professor Travers, and then anyone else can come in.
Do we have another challenge on co-ordination? There could be cross-regional economic spillovers; the impact of a policy in one region or area could affect another; and we might want to see successful innovations being shared across regions. Does there need to be some sort of central co-ordination mechanism? What could that look like?
Professor Travers: We are a centralised country. At the beginning, it is pretty centralised. In terms of “Rewiring the State”, there are a lot of things buried in that idea. It is not simply creating greater power in mayoral strategic authorities. There is a sense in which parts of Whitehall are to change radically, which is a much bigger issue, in order that decisions are made at this new MSA level in future.
We do not know much about all of that thus far. There is a little bit of information about civil servants being seconded into the new mayoral strategic authorities, which itself begs a question about the capacity of those MSAs. Hitherto, most MSAs have been receiving grants from central Government and then accounting for grants in terms of the way that they are spent. Many of them have relatively small budgets and do not raise much money locally. There is a significant capacity issue about how the MSAs will build up their capacity.
Related to that, what is the future of Whitehall Departments in the spheres of public policy that are to be devolved right across England to the MSAs? Again, we do not know any of the details of that so far. It could be a potentially radical change to the shape of central Government as well as a significant building-up of capacity at this sub-national government level. I am sorry. “Sub-national government” is a clunky term, but I am trying to differentiate it from councils. At the MSA level, there is going to have to be a significant amount of capacity building in order to allow the scale of devolution as envisaged.
My colleagues will know more about spillovers than me. On spillovers, all I would say is this: England—we are talking about England here, overwhelmingly—is a very small country. Even the existing mayoral strategic authorities adjoin each other and have labour markets that flow across borders. England was not laid out in a Napoleonic way to make it self-contained by region.
Chair: Do not tempt a Chancellor.
Professor Travers: Yes, I am sorry. Spillovers are more my colleagues’ world.
Helen Miller: I would add three things to build on what Tony was saying. There are many things that I would like to see, but I would pull out three from the “Rewiring the State” stuff. The first is a clearer statement about what additional spending responsibilities the Government want to devolve to mayors. So far, we have had some revenue being devolved in place of other revenue; it is really a switching programme. What is the vision for what mayors are going to have control over? That should be the first thing that we talk about before we think about how they are going to fund it.
The second is a clear statement of the roles of different tiers of Government, which Tony has alluded to. What is going to be at the council level? What is going to be at the mayoral level? We have a situation now where councils do a lot of things such as social care, a lot of things that the Government want to renationalise or at least have common across the country so that there are no postcode lotteries. With the mayors having the economic policy bit, there is loads of policy in between. What is the role of these two areas of Government? A lot of councils are still vastly bigger than the mayors. How is that balance going to be set?
The third is about how you balance the different appetites for devolution across the country. Some places are very excited about their mayors; some places do not want them. It is already the case that devolution has had these bespoke deals everywhere. Stakeholders, including everyone from civil servants to the general public, need to know what the plan is. Is it that we all devolve the same things to the same places? Is it that there is a set of bespoke deals and different places have different areas? What does that mean for the funding? In the areas that do not have that devolved policy, who is doing policy for that area?
Again, we need to have this theory of what the vision for devolution is, which ensures that everyone understands what we are working towards and sets the pathway for designing the actual policy mechanisms.
Q207 Ms Minns: That was very clear about the additional powers. Can I just go back to a point that Professor Travers mentioned about the risk that you get divergence between areas? Mr Raja, perhaps I could come to you on this point. If you were the Chancellor, would you take the political risk to allow that divergence in order to pursue growth?
Sanjay Raja: It is a great question. My terrifying image about “Rewiring the State” is extension cables coming out from Whitehall and Westminster and being plugged into various parts of the economic geography across England. That is not what we want, ultimately. We want to have fuse boards that allow mayors and regional authorities to have some say about what they end up doing.
I will echo something that Professor Travers said. We have had place-based policies for a long period of time. What we have not had is the institutional capacity to deliver on proper devolution. We do not have genuine leadership capability across the country. We do not have the organisational culture, in some instances, when we think about the success of devolution.
There are plenty of studies—as Helen mentioned, you could look at evidence both ways—on the impacts of devolution on productivity and growth. In Europe, it is a lot more positive. Various OECD studies have pointed in that direction, but there is a conditional caveat. It is about equalisation. It is about the institutional capacity that ultimately delivers on the empirical findings of positive productivity.
To answer your question, the one thing that I would be very wary of is the unevenness across the landscape of English economic geography. One policy will not fit all. This is something that the Government will have to adhere to and try to understand where we can push policy in the right direction to empower regions and cities across the devolution drive.
Professor Travers: It is worth noting that the extraordinary levels of regional and sub-regional inequality in England—again, not that I want to exclude Scotland, Wales and Northern Ireland—exist inside an incredibly centralised system. That is a paradox much to be considered.
We have huge amounts of equalisation—we have health services equalisation, education grant equalisation, police grant equalisation and local government funding equalisation—and yet, despite all of that, these extraordinary inequalities by region and sub-region, begging a question as to whether the automatic equalisation arrangements that we have had in the past somehow take the policy eye off the ball in terms of the underlying problems of places whose economies need radical action to be turned around. That is the first thing that I would say.
Moving forward, there is an epic paradox facing Government between incentivising different MSAs to compete to pull ahead and equalising any differences that arise between them. That is a paradox at the heart of this policy. If you read carefully through the Fiscal Devolution Roadmap document, it leaves huge amounts of discretion to central Government to taper off any gains and protect any losses. That means a lot of power will remain in whatever is left of Whitehall.
Q208 Catherine West: In relation to accountability, Professor Travers, could you say briefly where you think the accountability lies between a Government Department at national level and one at mayoral or local level? The usual thing is that local government is not accountable, but could you say a little bit about accountability?
Professor Travers: As you well know, local government is accountable to its voters in the way that MPs are accountable to their voters, but the more technical answer to the question is that, of course, the Public Accounts Committee and other Select Committees take evidence from the accounting officers of Whitehall Departments, who are responsible for the money spent by their Departments, not for the policy but for the way the money is used.
The documentation that is published suggests that the chief executives of the increasing number of MSAs will be local accounting officers. The very use of those words begs the question as to whether they will be purely accountable within the MSA area to whatever scrutiny arrangements exist. The income tax base that is to be assigned and the non-domestic rate base that is to be further assigned are, in effect, both—one definitely and both really—national government tax sources. Certainly, after 1990 business rates have effectively been that, even though they are collected locally. If these central government grants are replaced by assigned revenues, there is a question about whether they are accountable only at the local level or at the parliamentary level. In a sense, that is not quite clear from where we have got to so far. I know the Chair has spoken publicly on this issue.
Q209 Catherine West: She has. Finally, we have talked about capacity building, but do you have any specific recommendations? There is a lot of thinking going on in Government. How can we help them? Does our expert panel have any specific recommendations about how to build capacity, particularly in the MSAs? At least you can start with an engine that is moving. I will start with Professor Travers, who I believe has thought about this before.
Professor Travers: It is absolutely true. You just need to look at the scale of difference between the existing MSAs. If you just look at their budgets, the biggest by far is the Greater London Authority, which has a gross budget turnover of about £25 billion. The second biggest is the Greater Manchester Combined Authority, which has a budget of about £2.7 billion. The others are smaller than that.
Many of them have not been focused, in the way that they are now expecting to be, on driving up economic growth and, of course, planning reforms, delivering housing and all the other things that these authorities are supposed to do, working, I might say, with the constituent authorities within them.
If you just take the economy, the kind of expertise that exists around me here at this table will be needed in a form at the mayoral strategic authority level to begin to think about what delivers economic growth. I do not want to be critical, but a colleague of mine makes the point that if you talk to many people in local government about economic growth, they will reply to you about property development. While property development is an element in economic growth, it is by no means the only reason that economies grow or do not grow. It is also about the local education system and inward investment. There are a whole range of issues that impact upon local growth.
Given that the Prime Minister has made clear that this policy is in part, but significantly, designed to drive up economic growth, which is the issue that you have been discussing this morning, the extent to which expertise can be embedded about the economy, planning, housing delivery and all the other things that mayors are going to have to do by convening with the district authorities that constitute them, capacity building is going to be a major piece of work.
Chair: Thank you very much. There is lots more to get into there. This is going to be a big debate.
Q210 Ms Minns: Can we come to energy support? Ms Curtice, earlier on you said that the Budget is really not facing up to the squeeze that households are facing and that it is not a good way to address the problems that we are looking at. What would be a better alternative?
Ruth Curtice: The problem with trying to spread the jam is that the jam is spread very thinly and evenly. This is a cost of living package, but, when you look at the richest half of households compared to the poorest, it provides the poorest with less than £15 more support than those on above-average incomes.
In particular, energy costs do not fall evenly across the population. We often talk in averages, but while three-fifths of those in the richest 20% of the population will get £100 from the Government this winter, a fifth of those in the poorest 20% are facing energy bills going up by more than £300. Even though on average richer households spend more on energy, I am particularly worried about those households with high gas use. In 2022, for example, we saw a different response from richer and poorer households. Richer households cut back on electricity use in response to the price signal. In poorer areas, we saw a much bigger adjustment through gas use.
The households that I am particularly worried about are those with high gas needs because of their housing, health or family size. Giving everyone £100 does not reflect that. Moving the gas standing charge on to a unit cost potentially next year makes that worse.
Q211 Ms Minns: What is the alternative?
Ruth Curtice: The alternative would be to target by income and by energy need. There are various different ways that you could do that. The one that we have proposed looks at the highest-income individual in the household, which is not perfect but might be practical, and does a unit discount so that those people with higher energy needs are getting more support.
There are other proposals out there. The key thing is to vary it by the amount of energy people use and by income. That is difficult for the Government to do. The infrastructure does not completely exist. We knew this shock was coming from March. In 2022, lots of us said that we needed a better system for doing this, and yet here we are basically doing the same policy that Rishi Sunak did back then.
Q212 Ms Minns: Moving away from households, one of the other things that the Budget did was announce a 20% to 25% electricity discount for 10,000 energy-intensive manufacturing firms. Is that a subsidy for energy-inefficient firms? I see you nodding, Ms Miller. I will come to you on this one.
Helen Miller: It is an interesting one because, again, the background of the fact that we have these levies on unit prices is a problem. We cannot delete them. Someone has to pay for subsidies, but the fact that they are on unit prices is a problem. It means that our companies face very high electricity prices internationally.
One way to see the scheme is that some firms will move those levies somewhere else. That on its own is a good thing. The question then becomes, “If you are not doing it across the board, why are you doing it for these companies?” One reason is that these are the companies that are more likely to be internationally mobile. Basically, they will move their stuff somewhere else. They will go and emit more carbon somewhere else, and therefore it is not even helping globally. As a long-run policy, moving those levies somewhere else is a good thing, with the caveat that someone has to pay for them.
This is a slightly odd one because it is a bit of a mix. On the one hand, it is industrial policy. On the other hand, it has been rigged up as a temporary support because there was a back payment in it. For that, it is less understandable. As temporary support, we have been quite strong in saying that temporary support should not reduce unit prices. When oil and gas is more expensive, you want consumers and firms to see the effect of that and have the incentive to reduce their consumption. As painful as that is, you want to know that it is expensive and therefore the support you give you want to give on the inframarginal unit as a lump sum. As an industrial strategy policy, it is okay, but we should think about who gets it. As a short-term temporary policy, it is not okay because it is on unit prices.
It is also really important to say that, whereas for households there is the redistributional issue that Ruth has talked about because we care about poor people, that is not the way to think about firms. Firms are not directly people. You have to think about why you would want to support a firm. There are a bunch of reasons, but it has to be things like, “This firm is financially struggling and might go out of business, and we want to help it temporarily not exit”. I have a colleague at the IFS doing lots of brilliant work on this using live price data. Firms are doing a bit better this time than in the last crisis. This would not be particularly well targeted at them.
That was a long-winded way of saying that, as an industrial policy, we should keep thinking about this. If you want to help firms temporarily in a crisis, this is not the mechanism to do it.
Q213 Chair: Ms Curtice, I wanted to talk a bit about the pension changes announced last year. The Budget document says that, for those with incomes just above the value of the new full state pension, the allowance will be gradually withdrawn through a taper, which is adding complications to the tax code. Do you want to comment on the fairness of that?
Ruth Curtice: It is adding complications, as you say. They are supposed to be temporary complications. It is another example of something that is scored until 2030, from memory, and then apparently will disappear. I say that because the fairness issue will get bigger and bigger if this is allowed to become a permanent feature of the tax system.
Clearly, you could have low-paid workers on the same wage. A typical part-time worker on the minimum wage earns around £12,400, on which they would pay about £40 or £50 of tax, but a pensioner now will not pay any tax at all.
Q214 Chair: If you had been given the mission to draw this up, is there an alternative that you would have proposed?
Ruth Curtice: If the objective was to avoid a pensioner receiving the new state pension paying income tax, there are a lot of worse ways that they could have done it. They have done a taper. They have not discriminated between other pensioners on low incomes from different sources.
I do not accept the idea that we should have a new state pension that is rising rightly now with earnings in the future but a frozen personal tax threshold and that pensioners are exempted from the consequences of that in a way that everyone else is not.
Q215 Chair: You have been quite trenchant on tax changes, Ms Miller. This is a high marginal tax rate of 53% for those affected. What would you advise the Chancellor, if you had his ear?
Helen Miller: Building on what Ruth said, you have to start with a clear plan of what it is that you are trying to achieve. If it is more of an administrative thing and you do not want to have people having to do the administration to pay very small amounts because it is a de minimis issue, maybe this is the best way that you can do it now. Let us get cracking and think about how you could bring the state pension into more of a pay-as-you-earn system so that, when this system rolls off, you can have people paying small amounts of tax very simply and very easily, which takes away the need for the policy.
If, on the other hand, it is a redistributive preference issue that says, “I want pensioners to have lower taxes because I favour that group”, for example, we should go in eyes wide open and understand that over time you are going to need an allowance that rises faster than the personal allowance. It is going to need to rise with the state pension, with earnings rather than inflation. That is going to become increasingly costly and we are going to go back to an old-style system where pensioners have a higher personal allowance. We should go in knowing that. At the moment it expires in 2030, are the Government in that year going to want to take it away? If it were sold as an administrative issue and a framework were put in place, maybe. If pensioners think that it is a pledge for them not to pay higher taxes, it is going to be really hard to get rid of that.
Conditional on wanting to do one of those things, as Ruth said, it could have been much worse and this is a reasonable way of doing it, but I still do not know what the Government are trying to achieve at an underlying level. What it should be doing in 2030 hinges on that question about what they are trying to do in terms of tax and the state pension.
Chair: That is food for thought for the Chancellor. I am sure his people are listening to your suggestions.
Q216 Bobby Dean: I wanted to talk a bit about the ambition of HMRC and tax compliance. The quick headline figures are that there will be an extra £10 million this year, £100 million the following year, £100 million the year after that, and then it jumps up to £2 billion, £2.5 billion and £3 billion in terms of expected income to the Government from closing the tax gap more generally. Ms Miller, are these figures credible?
Helen Miller: The honest answer is that, outside of Government, without being able to see all the HMRC data on how well they are doing so far, it is very hard to judge. They certainly look like ambitious numbers. If you take them at face value, you get a great return on investment. If they are as good as they look, why are we not increasing debt collection and these other measures? They are getting such a big return on investment.
It is worth saying that the OBR does talk about the uncertainty in these forecasts. It looks like it has done some adjustments to the numbers to account for the fact that we might be over-optimistic and that, every time you do more of this, you get a lower and lower yield.
It is also worth remembering that some parts of the tax gap, which is the difference between what HMRC thinks it can collect and what it is actually collecting, are very large, such as the tax gap for small companies. In some sense, there is a lot of money on the table not being collected. That is a reason to think that, if we can get it, it is there.
I do not know the answer. It would be good to talk to HMRC about what evidence it has that makes it confident that it can do this. There is a tax gap there. There is money to be had. There is a huge amount of uncertainty around it. The danger with all these things, as I have said every time that they have been announced, is that what tends to happen is that the Government score this very uncertain revenue and use it to pay for very certain things that we know are going to cost. There is a danger there. If these do not end up materialising, that money will not come in and yet we will still have the costs that we have earmarked.
Q217 Bobby Dean: Ms Curtice, they have also given themselves a new power to be able to recover taxes directly. Do you have any concerns about this new power and how it might impact vulnerable groups in particular?
Ruth Curtice: It is not something that I have looked at in detail. It is worth reflecting on the number of households that are in debt on priority bills more generally. Tax is one of those. We have seen big rises in energy debt and in people in arrears on their rents. To the extent that it is falling on those families, that may be the case. I have not looked at whether these powers would fall on those groups.
Q218 John Glen: Can we look at some of the tax changes? Ms Miller, you have said that the tax system in this country—to be fair to you, you have said it for all Governments over many years—is a messy patchwork lacking economic strategy. Did you discern anything in this Budget in terms of tax policy that pointed to some strategic changes?
Helen Miller: The short answer is no. You are right. It is a long-running problem with the tax system that no Government would be able to fix overnight. I am going to park devolution separately. On the devolution stuff, there was evidence of lots of consultation and lots of thinking about it, and there is still lots of detail to come. There is more of a plan there than in the rest of it.
If you take that list of 98 measures, what I see, sadly, is lots of fiddling. No, I do not see a strategy. I also see some things that, in my mind, go objectively in the wrong direction. Just to name a few, higher taxes on savings income goes in the wrong direction. Higher taxes on landlords is only seeing one part of the problem. Yes, there are some lower rates on landlords, but the tax base is completely distortionary. Landlords are already getting quite high tax rates when you look at the whole package.
The one that I am particularly and genuinely upset about is founders’ relief, which is a new preferential rate of capital gains tax. It is worth putting on record that there is an economic case to support some forms of entrepreneurship, but this is a dreadful way to do it, for reasons I am happy to go into.
Chair: Please do.
Helen Miller: I literally have a document listing the problems; it is about five pages long.
Chair: We would love to see that, if you could share it.
Helen Miller: I will happily type it up and share. There are two groups of problems. The first is about whether it is a well-targeted activity that will get you more entrepreneurs. The answer is that it is not, because it takes people who are already successful, who are already doing things and who know they have made it, and gives them a very big tax break. It is a very big tax break. HMRC thinks the average beneficiary will get something like £500,000 in benefit. The entrepreneur who is starting up cannot know whether they will be eligible for it because it has such tight criteria. You cannot possibly know whether your business will be eligible eventually. If you need some financing, you are getting nothing. It is partly a targeting problem.
I also worry that, even for the founders who will get it, for the entrepreneurs who will be eligible for it, it sets up a completely bizarre set of incentives that means people will be trying to distort their commercial behaviour not in ways that are good for their business or boost productivity—they actually might harm productivity—but in order to get this big, juicy tax relief.
Again, let me give you one example. I literally have a laundry list of them. It incentivises you, after a period of strong growth, to sell your company quickly to get the relief rather than have that period of strong growth, allow it to mature and then sell it at a later date. Rather than keeping your company, taking some money and putting it somewhere else, it incentivises you to sell.
I cannot imagine that anybody in the Treasury could have looked at the evidence around entrepreneurship and thought this was a good policy. They have designed another policy that is more fiddling. I cannot think of any clear economic rationale for it. It is going to drive bad behaviours.
Q219 John Glen: We feel your passion on this subject. Let us just step back and ask how this happened. There is a consultation. The officials in the Treasury have been tasked to do it. How have we got to the position where something that is designed to create an incentive effect and be positive for the economy is so wide of the mark? What would have been the best alternative, given the understandable constraint that there is not limitless money from the Government?
Helen Miller: On how we got there, I would genuinely love to know. I would love to know how this came about because nobody externally would have designed this.
On what we could do better, it is really important to distinguish between two separate issues. First, the current capital gains tax regime is full of problems. It disincentivises investment; it disincentivises risk-taking; it is unfair; it distorts behaviour in all sorts of different ways. We have set out, in many long documents, how to fix that and move towards what I would call a neutral tax system. That is a tax system that is not trying to encourage or discourage; it is trying to be neutral.
There is a separate policy problem, which says that there are some entrepreneurs that we want to actively incentivise because they have spillover effects. That is a genuinely hard problem. You cannot measure the spillovers. You cannot measure which entrepreneurs will be really good and which will not be; you certainly cannot do it through tax law. That is a genuinely difficult problem.
Again, the evidence points towards not focusing on the ones who already know that they are successful. I would start by looking at the point of investment and giving relief when people are putting money into a company or when they are making a loss. I would do it at the point where a real thing is happening rather than just giving big tax breaks.
Q220 John Glen: We have a stable regime in terms of VCTs, EIS and SEIS, although that is so much the case for VCTs because they have changed the incentive on those. Would something more in that realm have been more therapeutic?
Helen Miller: My views on those vary across the schemes, but I prefer the versions of those that are more about up-front relief, when money is going into a company, rather than relief for the people who know they have made it and giving them tax breaks. The trajectory to go down would be the versions of those schemes that are more about up-front stuff.
Q221 Andrew Lewin: I am going to be brave. This is my first Committee session. Helen, I want to come back on the founders’ relief. You understand the detail, and I have heard you. There is a well-recognised problem in the UK of us having successful start‑ups but not scale-up businesses and entrepreneurs saying, “There are more favourable tax regimes and other reasons that I might want to go overseas and internationally to build my business”. From what I understand of the policy, a big reason why the threshold is set as high as £10 million is because we also want to have an environment that is beneficial for companies that are scaling up, which are potentially the big successful companies of the future. Do you see some of the case for that?
Helen Miller: Yes. As I mentioned, I see the rationale. Again, there are two versions of that. The first is when individuals do not invest enough because they cannot capture returns and they cannot get finance. The second is when they can get that finance, but they want to live somewhere else. Those are distinct issues with distinct tax policies around them.
This particular policy is not well targeted at that. I have said this on record. Some people will benefit. Tax cuts always come with increased incentives, by their very nature. There will be some entrepreneurs that, because they can get this tax break, will be incentivised to work harder, to work longer hours, to do more and maybe to stay in the UK. That will happen. I am sure of it.
I am just making the case that the other set of costs will be far bigger than those benefits, especially once you add in the complexity, the compliance and the other undesirable behaviour. There will be other entrepreneurs who were not ever going to move to the UK. They are going to do what they were going to do anyway, but now they are going to sell their company too early because they wanted to get that tax break, employ five cleaners so that they can make the employment threshold, or manipulate the timing of their R&D so that they can get access to this.
Another thing that is worth saying is that the criteria are a lot about the business. A lot of them are about the trajectory of the business over a particular window. If you are standing there today and starting a business, you honestly cannot know whether you will qualify because it is going to depend on the conditions of your business and growth rates over some period.
If you are abroad looking into the UK, these reliefs change all the time. What do you want to bet that this relief is here in 10 years? I would not be betting on that. This regime changes all the time. Something simpler and more stable would be better at both incentivising those who are here to scale up and having an international regime.
Q222 John Glen: Could I move to Mr Raja and ask about the changes on the bank surcharge? The temporary surcharge for 15 months, widely trailed as going up to 8%, went up to 6%. The share prices went up a bit in relief. What effect will this have when you look at the aggregate tax that banks pay, with corporation tax, national insurance on employers and the levy? Will it have an effect on competitiveness or could it be offset by some of the changes that the incoming CEO of the PRA could give on capital requirements?
I will add one final point so you can all address it quickly, which is the issue of recurring revenues. There is a tendency to say, “We will just have a little bit for 15 months”. Presumably, there is a significant risk and a degree of uncertainty about whether it will be recurring in reality because it will be difficult to withdraw.
Sanjay Raja: Yes, absolutely. That is a very important question. There were two surprises. One was the temporary nature of the bank tax surcharge. Secondly, we were all expecting—everyone had it in our previews—to see something like a doubling.
Q223 Chair: Can I just ask about that? You say you were surprised. It was reported in Bloomberg at 10.45 am on Budget day. Was that the first you heard of it?
Sanjay Raja: Even before then, everyone expected a bank tax to be one of the low-hanging fruits that the Chancellor would use.
Q224 Chair: You expected it to be long-term.
Sanjay Raja: Absolutely, yes.
Chair: The Bloomberg story was breaking that news.
Sanjay Raja: Precisely, yes. Before then, we were expecting two things. The first was that we would get to 8% on the surcharge; the second was that it would be permanent. It is an easy lever for the Chancellor to pull.
On the reoccurrence point, that is certainly a question mark. If in 12 months’ time we end up with a Budget that looks a little bit dicey or a bit trickier and the public finance outlook looks a little bit more like where it is today versus where it was maybe a year ago, I suspect the Chancellor will end up having to revisit the temporary nature of it. In many ways, this is a problem that banks will really have to grapple with.
In terms of the competitiveness point, because of the temporary nature of it, the answer to that is no. It will not have an impact. This is a tax on profits as opposed to the balance sheet. We have a very competitive savings rate environment and mortgage environment. You see that at the moment. You mentioned the changes that the PRA could make in theory over the coming years. That could absolutely have an impact.
There was something that the Chancellor said as part of the Budget that most people would have ignored, which was the FPC remit that went out on the day. It was hidden in document 45 out of 60 or 70.
John Glen: Yes, like IR35 all those years ago.
Sanjay Raja: Precisely, yes. There was some push there in terms of looking at regulatory changes in terms of capital requirements, which could offset the banking tax surcharge increase.
Q225 Chair: We assume there must have been some negotiation. Do you have any insight into that?
Sanjay Raja: I do not. I am independent from Deutsche Bank’s management suite, so I cannot comment on that.
Q226 John Glen: What about the overall rate of tax paid by the banks compared to their peers? How does it leave us in terms of the competitive landscape of tax for banks?
Sanjay Raja: Certainly, we are now at the upper end of the range. There are only few countries in the G7, particularly in Europe, that have higher bank tax rates than we do. At the same time, the access to capital markets and the profitability that we have in the UK is far different from others.
John Glen: The hub effect insulates us a bit.
Sanjay Raja: Precisely, yes.
Q227 John Glen: In terms of the passing-on of this to savers and borrowers, what can you say about the probabilities around that?
Sanjay Raja: I will not be able to provide probabilities around that. What I can say is that the evidence around taxes on banks suggests that you tend to see wider lending margins. You tend to see it spill over for a period of time into mortgage lending products, et cetera. You do tend to see that effect.
We have had such a shift in the bank tax surcharge from 8% to 3% and back up to 6%. Especially given the temporary nature of it, I am not convinced that it will have a permanent impact on taxes.
Q228 John Glen: You think it might not be temporary, though.
Sanjay Raja: I think so. I do not know how others think about that, but certainly this is the risk with a lot of these taxes that we have—the temporary allowances and temporary cuts to VAT. The cliff edges that the Budget has created ultimately create a ragged-edged effect that will have a reckoning moment at some point or another.
Q229 John Glen: Do any of the other panellists want to say anything on this subject?
Professor Travers: I would simply say—again, this is slightly beyond my known world—that the balance between taxes that are imperceptible to the voter and taxes that are perceptible to the voter, given the issue that you have just been discussing and the decision not to uprate thresholds, et cetera, is a broad problem for the way that all Governments work.
The public hears lots about how public spending is divvied up and distributed. Rather less does it feel how the taxes raised to fund that are collected. Of course, if it is borrowing, it is paid by taxpayers in the future. This is yet another example of the challenge to democracy of having Governments that are able to raise taxes that people do not understand. It is a problem. It is a problem in the way that we understand democracy to work.
Chair: A former Treasury Officer of Accounts advised me that they were involved in the setting up of the unit in the Treasury, which Ms Curtice probably knows well, that was established to deal with non-direct taxation. They had a party when they reached their first £1 billion, which was some time ago. It is a well-landed point, Professor Travers.
Can I thank our witnesses very much indeed for their time? They are Sanjay Raja from Deutsche Bank, Helen Miller from the Institute for Fiscal Studies, Professor Tony Travers from the London School of Economics and Ruth Curtice from the Resolution Foundation. You were the entertainment today; you did a good job of delivering on that.
If you have anything else you did not feel you could get across, please do write to us. Ms Miller, we are itching for your five-page document on founders’ relief. I am sure that you all have similar bits of work that you would love to share with us. We would really genuinely like to receive those. We are seeing the Office for Budget Responsibility tomorrow and the Chancellor of the Exchequer on 11 November.
Thank you to our colleagues at Hansard. The transcript of this session will be available on the website uncorrected in the next couple of days. Thank you to our colleagues at Bow Tie for the broadcasting.